Market Review: September 23, 2020

Closing Recap

Wednesday, September 23, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     After snapping the 4-day losing streak for the S&P 500 and Nasdaq Composite on Tuesday, major averages plunged on Wednesday with every intraday rally met with even greater selling pressure to erase yesterday’s advance (as averages collapsed late day). Declines were broad based, but the tech heavy Nasdaq Composite underperformed along with energy stocks, with many names falling to 5-month lows in the space even with crude futures climbing following a bigger-than-expected decline in U.S. gasoline inventories. The Dow Jones Industrial Average fell less than other indexes as component Nike (NKE) reported a blowout quarterly earnings result. Manufacturing data from IHS Markit offset early gains after vaccine news from JNJ which said it initiates pivotal global phase III clinical trial of Janssen’s covid-19 vaccine candidate begins global final-stage trial of single-shot covid-19 vaccine in 60K people. There were also several Fed speakers today (Mester, Powell, Evans, Rosengren, Quarles among them) with low rates for several years and inflation expectations to remain under control as well a dominant theme.

·     Several market overhangs remain (though no one fear responsible for today’s action) including: a surge in coronavirus cases (especially overseas in Europe forcing lockdowns – France 13K cases today vs. 10K Tuesday), doubts over the next coronavirus relief bill with Washington at odds, healthcare industry uncertainty ahead of the next Supreme Court Justice nomination (how it related to Obamacare), ongoing trade tensions with China, and of course the Presidential election outcome (41 days away – though could last longer given the number of mail-in votes). Overnight, the House passed a short-term spending bill keeping the government funded through Dec. 11, after Democrats reached a deal with the White House over farm aid and food assistance.

·     In stock news, today marked a busy day of new issues, with several IPOs opening for trading including strength in GoodRX (GDRX) jumping 40% and Bentley (BSY), while shares of Corsair Gaming (CRSR) fell in its debut. Electric vehicle names dropped led by Tesla (TSLA) after its Battery Day disappoints and Nikola (NKLA) after reports talks between them and several potential partners stalled. There were several active sectors, but markets melted late day weighing on sentiment across the board.

Economic Data

·     U.S. business activity nudged down in September, with gains at factories offset by a retreat at services industries, suggesting a loss of momentum in the economy. U.S. IHS Markit September flash services PMI at 54.6 vs 55.0 in august, flash composite PMI at 54.4 vs 54.6 in August and flash manufacturing PMI at 53.5 vs 53.1 in August.



·     Gold prices extended losses, falling -$39.20 or about 2.1% to $1,868.40 an ounce, its lowest since late July as the dollar advanced with investors awaiting further response from major central banks as economic uncertainty looms. The dollar index hit an eight-week high, dimming gold appeal while inflation expectations are diminished. Gold prices declined despite U.S. stocks retreating after data showed U.S. business activity nudged down in September. Oil prices edged higher with WTI crude up 13c or 0.3%% to settle at $39.93 per barrel, getting a boost following bullish weekly inventory data, holding up well in a generally risk asset sell-off day.


Currencies & Treasuries

·     The dollar continued its recent push (after hitting 2-year lows 2-weeks ago) as the euro drops to lowest levels since late July vs. the dollar, falling -0.5% to 1.1670, while the buck extends gains against Japan’s yen, trades at session high above 105.30 and hits 7-week highs vs. the Swiss Franc. There have been a handful of Fed comments in recent days with Fed Vice Chair Clarida saying policymakers "are not even going to begin thinking" about raising interest rates until inflation hits 2%, (Evans said today does not expect any rate hikes through 2023, expects to reach 2% inflation by then and to overshoot later). Meanwhile, Cleveland Federal Reserve Bank President Loretta Mester said monetary policy will need to remain accommodative for the next several years and more fiscal stimulus is needed to support the economy. The comments are all perceived as negative for the dollar with no rate hikes on the table, but the buck rose anyway.

·     At the same time, trading action in Treasury markets have remained very calm over the last few weeks, with yields in a very narrow range despite volatility in stock markets; the 10-year yield remains just below the 0.7% level and the 2-year at 0.14%. The U.S. Treasury sold $53B in 5-year notes at a yield of 0.275% compared to 0.285% when issued prior, as the bid-to-cover (demand) was 2.52 and indirect bidders awarded 61.9% of auction and directs 17.3%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; NKE reported a significantly better-than-expected Q1, led by digital sales +83%, with both EMEA & NA (where digital was up ~+100%) importantly also essentially seeing sales improve to flat, while gross margin also posted upside (shares of rivals UA, ADDYY, LULU, FL among names moving in sympathy early); LULU says set to resume share buybacks (remaining to be repurchased under program is $263.6 mln); TGT launches cash tender offers for up to $1.75 billion of debt securities; HAS upgraded to outperform at BMO based on an improving outlook for the toy industry, benefits from stay-at-home, and good brand positioning; PTON and NLS rise after AMZN denies partnership with Echelon on fitness bike

·     Auto sector; TSLA shares slide with the Battery Event catalyst behind them and disappointing investors as some of the innovations showcased at the event were “close to working” and some three years away from fruition – analysts such as Baird were cautious about demand given the recessionary environment, particularly given TSLA’s premium valuation. CEO Elon Musk outlined his company’s ambitious battery manufacturing and cost-reduction goals but detailed how long it might take for those goals to be reached. Musk unveiled a larger car battery cell, called the 4680, that will generate six times more power, five times more energy and 16% more driving range, all at about 14% lower cost. Musk said the cheaper and more efficient batteries ultimately will let Tesla "make a compelling $25,000 car that is also fully autonomous."; NKLA shares were active after the WSJ reported talks between them and several potential partners, including BP to build hydrogen-refueling stations stalled following allegations the company had misled investors, according to people familiar with the matter

·     Housing & Building Products; in homebuilders, KBH posted strong Q3 results that beat on EPS and revs and as overall net orders grew 27% y/y (well ahead estimates) with a solid +50% y/y growth rate in August, but issued subdued 4Q rev/margin guide and an in-line FY’21 rev guide; CVCO was upgraded to Buy at Craig Hallum and maintains a buy on SKY as both stocks have pulled back even as the underlying fundamentals have been improving, pointing to prices of lumber tripling recently and this having a near-term impact on margins; in furniture names, SCS shares toppled reports Q2 revenue $818.8M vs. $998M last year and guided Q3 EPS 12c-18c on revs $690M-$725M vs. est. 18c and $703.9M (MLHR, KNL down in sympathy)

·     Consumer Staples & Restaurants; GIS shares edge higher after top and bottom line beat as Q1 adj EPS $1.00 on sales $4.4B top the 87c and $4.21B estimate; LSF 2.65M share IPO priced at $22.00; MDLZ price target was raised at Piper to $66 from $60 and they remained OW; SYY won a 5-year, $804.7M contract from the Pentagon for full-line food distribution and was initiated at Peer Perform by Wolfe; HRL launched new convenient breakfast offerings; CAG launched the first-ever collection of plant-based meat alternative soups; PPC announces CEO leaves



·     Energy stock movers; overall energy space slid; RDSA’s Philippine subsidiary to sell 45% stake in its $4.5B offshore gas-to-power project, and signed an agreement with Neste, a Finnish refiner and biofuel producer, to increase the supply of sustainable aviation fuel; BP sales of its chemical busines to Ineos was cleared by the European Commission

·     Inventory data showed: the API reported that U.S. crude supplies rose by 691,000 barrels for the week ended Sept. 18, showed gasoline stockpiles dropped by -7.7M barrels, while distillate inventories declined by -2.1M barrels. Crude stocks at the Cushing, Okla., storage hub, meanwhile, inched up by 298,000 barrels for the week

·     Utilities & Solar; NI was upgraded to Buy with a $25 pt from Neutral at Jefferies ahead of next week’s investor day; NEP pt was raised to $59 from $53 at JPM; FTS boosted its quarterly dividend by 5.8% to C$0.505 ($0.38) and also extended its dividend guidance to target annual dividend growth of ~6% to 2025, and also unveiled its new 5-yr capital investment plan of C$19.6B from 2021-25. SEDG was started at Buy, $254 pt at B. Riley FBR; Other solar stocks (CSIQ, SPWR, FSLR, ENPH) were strong after JKS reported Q2 adj EPS of $1.20 on revs $1.2B vs est. $0.61, $1.14B and lifts Q3 rev guidance to $1.22-1.3B from est. $1.22B; FE falls after Ohio AG sues FirstEnergy, alleging pattern of corrupt activity; SPI launched its wholly owned subsidiary, EdisonFuture for designing and developing electric vehicles and EV charging solutions (shares jumped more than 3,000% earlier)



·     Bank movers; PBCT sold its People’s United Insurance Agency to Assured Partners for $120M in cash; Raymond James upgraded OSBC to Strong Buy from Outperform with a $10 pt as it is trading at a significant discount relative to its peers and its improved credit culture; in insurance, UIHC said it expects Q3 catastrophe losses of about $135M before taxes ($107M after) and its pt was lowered to $7 at Wells Fargo who maintained their UW rating; Bloomberg reported JPM to pay $1B in record spoofing penalty

·     Consumer Finance; AXP downgraded to Underperform from Neutral with a $95 pt at BAML despite management’s execution and the stock’s resilience during Covid on concerns about near-to-medium term billing volumes, particularly airline and lodging spend, which made up 16% of 2019 billings as BAML thinks this will take some time to fully recover; PYPL and MA announced that they are continuing the global expansion of the popular PayPal Business Debit Mastercard, which makes it easier for small businesses to have instant access to their PayPal funds and gives them unlimited 0.5% cash back on all their eligible spending; FIS announced a partnership with The Clearing House to bring real-time payment processing and settlement to small-to-mid-sized banks and credit unions and their customers;

·     Investment Managers; BX priced its offering of $500 million of 1.600% senior notes due 2031 and $400 million of 2.800% senior notes due 2050 of Blackstone Holdings Finance, its indirect subsidiary; KKR acquired a 1.28% stake in Reliance Retail, India’s largest retailer, for $754.5M and also acquires 1-800 CONTACTS for an undisclosed sum; Truist initiated FSK at Hold with a $16 pt and FSKR at Buy with the same pt as it expects the gap between the two to close; BAM is starting a public offering of notes due 2051

·     REITs; NSA priced its 4.5M share Spot Secondary at $33.15; Baird upgraded TRNO to Outperform from Neutral with a pt to $60 from $57, downgraded STAG to Neutral with a $35 pt from OP, and initiated EGP at Neutral, $140 pt; HTA reactivated its $300M buyback plan through Sept 2023 and increased its quarterly dividend to 32c/share from 31.5c

·     Brokers and Exchanges; VIRT slides after saying it expects its results of operations for the two months ended August 31, 2020 to reflect net trading income of $295M-$303M and estimates July 2020 average daily adjusted net trading income of $6.50M, down from the previously estimated range of $6.70M-$7.00M; CME was upgraded to Overweight from Neutral with a new price target of $195 from $176 at Atlantic Equities.



·     Pharma movers; JNJ initiates pivotal global phase III clinical trial of Janssen’s covid-19 vaccine candidate begins global final-stage trial of single-shot covid-19 vaccine in 60,000 people and expects results from trial by year end or early 2021; ZGNX slides after plans to offer $200M principal amount of convertible senior notes due 2027; GMAB slides on announcement that it was locked in a legal battle with its partner JNJ over royalty payments for its key cancer drug; VTVT rose after saying its mid-stage study of experimental diabetes treatment TTP399 showed it did not increase the risk of diabetic ketoacidosis; in cannabis, ACB falls as guides Q1 revs to be between C$60M-C$64M, below the estimate of C$69.6M after Q4 revenue falls 5% to C$72.1M from a year earlier (shares of CRON, TLRY also active on guidance)

·     Biotech movers; ACIU falls after it and partner Roche Holding unit Genentech reported its experimental therapy to treat patients with early Alzheimer’s disease did not meet efficacy main goal in mid-stage trial; MNOV rises following encouraging preclinical data on its intranasal COVID-19 vaccine candidate, BC-PIV SARS-CoV-2 as results from a mouse study showed that the vaccine induced high titers of serum IgG and mucosal IgA neutralizing antibodies against the S1 antigen of the SARS-CoV-2 virus

·     Healthcare services and providers; U.S. online prescription drug platform GDRX priced its IPO at $33 per share, above its target range to sell $1.14 billion in stock; CNC announces offering of senior notes; Nutrisystem debuts its body select program in Walmart stores and on

·     MedTech and Equipment; BAX said the FDA approved new higher-protein formulations of its Clinimix and Clinimix injections for patients who need an intravenous administration of nutrition; MDT announced first enrollments in the ALLEVIATE-HF clinical trial which will evaluate the ability of its Reveal LINQ(TM) Insertable Cardiac Monitor (ICM) in identifying patients at high-risk of worsening heart failure


Industrials & Materials

·     Industrial & Machinery; waste sector rating changes at JPMorgan as they upgraded WCN to Overweight, while downgraded RSG to Neutral, and WM to Underweight saying they believe the worst of the COVID-19 shutdowns is behind us, and all of the waste service providers that they cover have proven to be more resilient than expected; Bernstein initiated ten names in the machinery and E&C sector with outperforms on CMI, AGCO, TRMB, PWR, and J and recommend the pair trade of Long URI/Short CAT and highlight DE as an attractive stock to buy on a pullback while saying now is the time to get more positive on the sector

·     Transports; on rails, RBC updates estimates ahead of Q3 and outlines channel checks where they found that Intermodal and Grain carloads are trending positively into Q4 as top ideas are CP given its operations focused mgmt & attractive valuation and UNP; Credit Suisse cuts PT for UAL to $37 from $41, DAL to $37 from $42 and ALK to $45 from $51; raises JBLU to $11 from $10 and LUV to $46 from $45 while expects U.S. passenger traffic to fall 62% this year, and then recover to about 68% of 2019 levels next year, 86% by 2022, and 96% by 2023

·     Metals & Materials; lithium producers ALB, LTHM, SQM came under pressure after TSLA outlines plan to halve the cost of its batteries yesterday (lithium is used in EV batteries) – Tesla said at its "Battery Day" event that it has got rights to a lithium clay deposit in Nevada, with enough to electrify the entire U.S.; GEF upgraded to market perform at BMO Capital citing strengthening industrial activity and better than expected performance in the containerboard markets; gold miners slide (AEM, GOLD, NEM) as the dollar rises and gold prices tumble over $30 an ounce


Technology, Media & Telecom

·     Internet; TWTR was upgraded hold to buy with $59.75 tgt at Pivotal as like: 1) Olympics on the come in 21, 2) the hopes for direct response to beginning to kick in and 3) a potential subscription business; SFIX shares slide despite a Q4 beat amid softer Q1 guidance – while F1Q21 outlook of mid/high SD growth may be disappointing, it reflects fewer adds/loss of active clients in F3Q20, but not the resumption of growth

·     Semiconductors; QCOM has applied for licenses from the U.S. government to supply the banned Chinese company with chips, which Huawei will use in smartphones if allowed; WDC upgraded to buy from hold and raise tgt to $62 from $44 at Craig Hallum saying new CEO is making the appropriate decision to separate the HDD and flash businesses within WDC; overall semiconductors outperformed the broader technology space

·     Software movers; ZI upgraded to overweight at Wells Fargo citing the company’s end-market growth opportunity as companies are shifting budgets from travel & expense to tech due to work-from-home constraints; ZM trades to new record all-time highs; with a week to go ahead of its expected direct listing on the NYSE, big data analytics company Palantir Technologies offered financial guidance saying it expects Q3 revenue of $278-280M (+46-47% Y/Y) with operating income of $60-62M; CRSR opens for trading at $15.12, 11% below the $17 IPO price after the offered 14M shares priced at the midpoint of the prior $16-18 range to raise $238M.

·     Media & Telecom movers; DISCA downgraded to Neutral at JPMorgan and cut tgt to $25 from $28 as the streaming wars continue to heat up – says while Discovery plans to clarify its DTC strategy soon, are not convinced the stock would be able to rerate when management outlines plans for their services; VIAC tgt raised to $35 from $30 at JPMorgan saying co’s streaming service "Paramount+" is better positioned than the market is giving credit; DIS said it delayed the release of its “Black Widow” movie as they adjust schedule due to pandemic


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.